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You are watching: What is the purpose of a life cycle cost estimate


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INTRODUCTION TO price ANALYSIS

Ellen Barber, CDFM-A, CCE/A, EVP

 

BACKGROUND

      every Department the Defense (DoD) army Departments and Defense agencies (herein described as "DoD Components") prepare life cycle cost estimates (LCCEs) in assistance of your acquisition programs.  A LCCE make the efforts to identify all the costs of an acquisition program, from its initiation through disposal that the resulting mechanism at the end of its valuable life and also to effectively phase, or spread, the costs for consist of in spending plan submission documents.

      LCCEs for DoD solution serve two main purposes.  First, castle are provided at acquisition routine milestone and decision evaluate to evaluate whether the system"s price is affordable, or continuous with the DoD Component"s and DoD"s overall long-range investment and force structure plans. Second, LCCEs form the basis for budget plan requests come Congress.

      as in other facets of acquisition management, preferably use should be make of the combined Product and procedure Development (IPPD) concept and also Integrated Product groups (IPTs) in the advancement and review of LCCEs.

THE DEFENSE LIFE CYCLE management SYSTEM

      new acquisition programs arise indigenous the visibility of either warfighting deficiencies or opportunities to provide brand-new capabilities as documented in one Initial Capabilities paper (ICD).  The ICD defines the generally defined operational ability required to satisfy a deficiency and documents reasons why non-materiel transforms (e.g., strategies or doctrine) cannot satisfy this need, thereby requiring a materiel equipment (i.e., an acquisition program).  These wide capabilities space then refined right into system operational requirements continual with the kind of system proposed come remedy the mission need.

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       Based ~ above all recognized requirements, the regime office prepares an initial LCCE for its salvation program.  as the regimen passes v its miscellaneous phases and also milestone decision points, the LCCE is to update by the routine office and reviewed by decision makers.  In the cases of major weapon mechanism and major automated information system (AIS) acquisitions, at the very least one added LCCE must be prepared by an company independent the the regimen office and also the salvation chain that command (see "Cost Estimating/Analysis evaluation Process" section later on in this note.)

      for weapon mechanism acquisition programs, the LCCE help decision devices assess the affordability that the system.  for AIS acquisition programs, the LCCE provides input because that the required cost-benefit analysis.  The cost-benefit analysis allows decision devices to assess whether the AIS will produce satisfactory returns because that the investment.

      LCCEs are ready in terms of base year dollars (also well-known as constant year dollars) for a selected basic year (usually the year of regime initiation or last significant milestone review).  because that budgeting purposes, the estimate is escalated to then year dollars (also recognized as current year dollars) to reflect inflation and also outlay patterns, and is offered as the basis for input to the Planning, Programming, Budgeting and also Execution (PPBE) process.  These estimates ultimately become the foundation for the program"s resources request in the President"s spending plan submitted to Congress.

THE LIFE CYCLE cost MODEL

      Life bike cost(LCC) have the right to be defined as the full cost come the government of a program over its complete life, including prices for research and also development, testing, production, facilities, operations, maintenance, personnel, eco-friendly compliance, and also disposal.  each of the program"s stakeholders (Congress, regime office, contractors, and DoD decision makers) prefers to see life cycle prices grouped in a way that reflects its certain perspective.  The three major ways of grouping and also viewing regime LCC room by:

Funding appropriation:  DoD receive appropriations from congress falling right into five major categories: Research, Development, Test and also Evaluation (RDT&E), Procurement, Operations and also Maintenance (O&M), Military construction (MILCON), and also Military Personnel (MILPERS).  regimen life cycle costs are broken out follow me these lines for internal budgets, and also budget requests to Congress.    Work breakdown Structure (WBS): A regime WBS offers a frame for program and also technical planning, expense estimating, resource allocations, performance measurements, and also status reporting.  The WBS should define the full system to be emerged or produced; screen the complete system as a product-oriented pecking order composed the hardware, software, services, data, and also facilities; and also relate the elements of work-related to one another, as well as to the finish product.  major acquisition program offices shall keep going a program WBS in accordance with MIL-STD-881.  MIL-STD-881 has appendices through a strawman WBS and dictionary for eleven species of equipment down come at least WBS level 3.  aspects common to all system are included in a separate "common elements" appendix. Expense breakouts by WBS facets are beneficial to the program office and also contractors in regulating the program.